In re Energy Future Holdings Corp., 575 B.R. 616

Background

Debtors (EFH/EFIH) entered a Merger Agreement with NextEra (July 29, 2016) that included a $275 million termination (break-up) fee payable to NextEra under specified circumstances.
Debtors sought and the Bankruptcy Court approved the Merger Agreement and Termination Fee on September 19, 2016; the record regarding exactly when the fee would be payable was confusing and incomplete.
Key ambiguity: the Merger Agreement contained no regulatory-approval deadline and, if the Texas Public Utility Commission (PUCT) denied approval, the fee could become payable if the Debtors (not NextEra) later terminated to pursue an alternative transaction.
PUCT ultimately denied NextEra’s change-of-control application after hearings and rehearing requests (April–June 2017); NextEra did not terminate the merger but pursued appeals, forcing the Debtors to terminate the agreement on July 7, 2017 and enter a deal with another party.
Elliott moved to reconsider the Court’s September 19, 2016 order approving the Termination Fee, arguing the Court misapprehended critical facts and therefore misapplied the governing Third Circuit O’Brien standard; the Court granted reconsideration.

Issues

Issue	Elliott (movant) argument	Debtors/NextEra argument	Held
Whether the Termination Fee Order is interlocutory or final	Order is interlocutory because allocation and entitlement issues remained; rights unsettled	NextEra argued reliance and finality should preclude reconsideration	Interlocutory — court treated order as interlocutory (flexible bankruptcy finality) and reconsideration permissible
Whether the Court misapprehended material facts at approval hearing	Court misunderstood when fee would be payable; record was confusing and parties failed to disclose that NextEra had incentive to wait, forcing Debtors to terminate and trigger fee	Debtors/NextEra relied on record statements that NextEra would not seek fee if NextEra terminated; argued parties relied on order	Court found a manifest misapprehension of fact: record was confusing and court overlooked that Debtors-initiated termination after PUCT denial would trigger fee
Whether the Termination Fee satisfied O’Brien (actual benefit to estate)	Fee could be payable even if PUCT denied approval and transaction failed — such payment would not provide an actual benefit to the estate and therefore fails O’Brien	Debtors argued fee was market, induced NextEra bid, and unlikely to be triggered	Court held fee could not meet O’Brien because it could be payable where no actual benefit to estate existed (e.g., after regulatory denial and debtor termination) — approval was legal error
Whether reconsideration is warranted despite passage of time and reliance	Reconsideration needed to prevent manifest injustice and correct clear error of law/fact	NextEra emphasized reliance and costs incurred pursuing approvals	Court concluded interests of justice outweigh finality; granted motion to reconsider and directed proposed orders

Key Cases Cited

In re O'Brien Envtl. Energy, Inc., 181 F.3d 527 (3d Cir. 1999) (establishes that a termination fee must provide an actual benefit to the estate to be allowed as an administrative expense)
In re Reliant Energy Channelview L.P., 594 F.3d 200 (3d Cir. 2010) (termination-fee approval discussed in post-O'Brien context)
Bullard v. Blue Hills Bank, 135 S. Ct. 1686 (2015) (bankruptcy orders may remain interlocutory under a pragmatic finality analysis)
Max's Seafood Cafe ex rel. Lou-Ann, Inc. v. Quinteros, 176 F.3d 669 (3d Cir. 1999) (standards for granting reconsideration; manifest injustice/clear error)
Harsco Corp. v. Zlotnicki, 779 F.2d 906 (3d Cir. 1985) (grounds for relief and standards relating to finality and reconsideration)
In re Mammoth Mart, Inc., 536 F.2d 950 (1st Cir. 1976) (administrative priority requires that the estate actually benefited)
Calyon N.Y. Branch v. Am. Home Mortg. Corp., 383 B.R. 585 (Bankr. D. Del. 2008) (applying Rule 59(e) standard to reconsideration of interlocutory bankruptcy orders)